Saints Capital: A Snapshot

Yesterday, Saints Capital, a San Francisco-based secondary investor, announced that it’s paying cash-strapped medical device maker Boston Scientific Corp. about $100 million for stakes in 54 private holdings. Saints announced a similar-size transaction last month, when it agreed to pay a little more than $100 million for the stakes in five companies that Safeguard Scientifics, a publicly traded life-sciences holding company, had accumulated. (Safeguard says it’s reinvesting the capital in newer companies.)

To put these amounts of money into perspective: Saints Capital closed its first, $11 million fund, in 2000. By 2006, the firm had around $450 million under management. Today, Saints is managing more than $1 billion.

I phoned Saints’ founder and managing partner Ken Sawyer last night to chat about the transactions. Because I caught him leaving a hedge fund conference in Monaco and heading toward London — where Saints, which now employs 25 people, has opened a second office — he couldn’t speak for long. But he did share that healthcare is, right now, more interesting to Saints than information technology. “We think telecom infrastructure, mobile, those types of things are very attractive, but the demand dynamics keep changing,” said Sawyer. Sounding less than saintly, he added: “Healthcare companies are less susceptible to slowdowns in spending. People are always getting sick.”

Saints has long had a healthcare partner, Lilian Shackelford Murray. But as Murray slips into retirement as an investor, Sawyer has brought several new people aboard to manage Saints’ growing portfolio of healthcare-related assets, including Mike Callaghan, formerly a healthcare VC at Toronto-based MDS Capital; Robert Simon, previously a director at Alta Partners and a venture partner at Sierra Ventures; and, as of yesterday, Scott Halsted, formerly a healthcare partner at Morgan Stanley Venture Partners.

Saints isn’t alone in its growth. Secondary funding sources have been mushrooming. Roughly 30 dedicated secondary private equity funds have sprung up over the last 10 years, and their assets have grown in a straight line toward the sky. In 1998, they collectively raised $1.3 billion, but this year they’ll raise nearly $19 billion, predicts NYPPEX, a private equity trading and banking firm that tracks the secondaries industry.

The venture piece of the overall picture is much smaller, but it’s also ballooning. Saints estimates that assets for secondary direct transactions in the venture industry stood at $1.25 billion in 2006 and will grow to roughly twice that amount by the end of this year. And Saints isn’t the only firm to double the amount of capital it’s managing over the last two years. Eight-year-old Industry Ventures, another San Francisco-based secondaries firm, just closed its newest fund at $200 million — nearly as much as the $250 million that Industry raised across its seven previous funds. Lake Street Capital, Pantheon Ventures and Paul Capital have venture-oriented secondary funds that are seeing far more action these days, too.

“With LP concerns about a recessionary environment that’s expected to add approximately two years to exit dates, and lower IRRs, we’re seeing a significant increase in LPs planning to sell venture fund interests this year,” said Larry Allen, a managing member at NYPPEX.